Syncora Files Objection against Detroit’s Bankruptcy Plan

by San Antonio Attorney

One of Detroit’s largest creditors is asking the court to reject the city’s bankruptcy plan to eliminate or bring down billions of dollars it owes. A hearing to determine whether Detroit’s plan is feasible and fair is scheduled to begin next week.

Syncora Guarantee claims that the plan developed by emergency manager Kevyn Orr and lawyers employed by the city is not fair, will be extremely expensive to defend, and will fail in the end.

The biggest municipal bankruptcy in the country’s history is slated for trial on Aug. 21.

Detroit sought for bankruptcy protection last year because it could not pay off its $18 billion debt. The city owes $400 million to Syncora, and the debt tied to an interest-rate swap deal on pension bond debt. The city pledged payments from casino revenue taxes as guarantee to prevent it from defaulting on previous debt payments. The agreement made it possible for Detroit to obtain fixed rates on pension bonds with the banks.

The swaps are supported by Syncora, which stands as a trustee and makes payments from casino income to entities that have participation in the swaps. Syncora failed to sustain $15 million of tax revenue from casino every month in a bank-held trust. The income is vital in paying for Detroit’s services.

A major point in the objection filed by Syncora is a court-mediated arrangement between Detroit, foundations, and large corporations that guarantees over $800 million within 20 years to pay for the pensions of city workers. The deal would push away the sale of the Detroit Institute of Arts’ collection to help repay city’s debt.

Retirees must vote in favor of the Grand Bargain to avoid deeper cuts on their pensions during the city’s bankruptcy.

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